Progress in euro zone talks on Greece, no deal yet

BRUSSELS/ATHENS (Reuters) - Euro zone finance ministers made progress on Wednesday on ways to keep Greece afloat, Germany said, as talks between Athens and its foreign lenders near conclusion over reforms it must implement to receive fresh emergency loans.

Greece needs to push through spending cuts and tax measures worth 13.5 billion euros ($17.5 billion) as well as a raft of economic reforms to satisfy EU and IMF lenders and secure more bailout money to avoid bankruptcy.

Parliament in Athens took a step forward by narrowly passing a required privatization measure, but the precariousness of the government's majority fuelled doubts about the passage of other more contentious reforms next week.

After a two-hour conference call of ministers from the 17-nation Eurogroup, German Finance Minister Wolfgang Schaeuble told a news conference: "There was considerable progress."

Eurogroup chairman Jean-Claude Juncker said in a statement he expected a deal at the finance ministers' face-to-face meeting on November 12 provided Greek authorities had completed a list of prior actions.

Schaeuble said ministers expected to receive a crucial report from the so-called "troika" of international lenders on November 11 or 12, near the deadline, but insisted: "Time pressure cannot lead to irresponsible solutions."

The German minister also said there were no concrete negotiations yet with Cyprus, which has said it may struggle to pay public sector salaries in December without aid, and they would probably not start until 2013.

The ministers received more bad news earlier when Athens slashed its forecast for a budget surplus before debt servicing costs next year, dimming one of its few bright spots as rounds of austerity deepen a recession already into its fifth year.

The government forecast a 4.5 percent economic contraction in 2013, which will push public debt to a record 189.1 percent of gross domestic product. The primary budget surplus is forecast to be just 0.4 percent, well down on the 1.1 percent penciled in previously.

Greece's lenders are not discussing at present another debt write-off, or "haircut", Thomas Wieser, the coordinator of euro zone finance ministers said, but EU diplomats say other ways of stretching out official loans are on the table.

The options included lengthening the maturities and reducing the interest rate on existing loans, an interest payment holiday, letting Greece buy back its own debt at a discount with borrowed money and allowing it to issue more short-term T-bills.

Even though IMF and EU officials say privately Greece's debt is unsustainable and will have to be restructured, Schaeuble said that for a large majority of euro zone countries accepting a "haircut" was legally impossible.

The troika is readying a debt sustainability analysis and pondering ways to plug a financing gap if Greece were to reach a primary surplus, which excludes interest payments, of 4.5 percent of GDP in 2016 rather than in 2014.

A troika estimate presented to junior euro zone finance ministers last week showed Greece would need an extra 30 billion euros ($39 billion) in funding over the two extra years.

Wieser said it would be "very, very tough" for Greece to reach the original target, given the depth of its recession, a view underscored by Wednesday's revised forecast.

The latest budget figures nonetheless confirm the country is on track to achieve a primary surplus for the first time since 2002, after a 1.5 percent deficit in 2012.

PASOK BACKS REFORMS

A deal on restarting the second bailout for Greece, stopped in June because the country was off track with reforms, hinges on the ruling coalition adopting strict labor market reforms.

An overwhelming majority of Socialist lawmakers agreed on Tuesday to vote in favor of the contested reforms, party officials told Reuters, sharply increasing the likelihood of the government winning a parliamentary vote which has become its biggest test since taking power in June.

After months of negotiations on the austerity plan, Prime Minister Antonis Samaras announced that talks had been completed and implored his allies to back the package, which includes scrapping automatic wage rises and cutting severance payments.

The prime minister's New Democracy party and the Socialist PASOK have between them 160 deputies, nine more than they need for an absolute majority in parliament.

But the third party in the coalition, Democratic Left, refuses to back the proposed new labor laws which could tempt other deputies to defect and leave the government facing an unpredictable vote next week. The privatization measure passed by just 149 votes to 139 on Wednesday.

"What would happen if the deal isn't passed and the country is led to chaos?" Samaras said in a statement. "Such dangers must be avoided. That is the responsibility of each party and every lawmaker individually."

MOVING TARGETS

The government included a large chunk of the austerity measures in the 2013 budget bill presented on Wednesday, with the remaining measures and labor reforms in a separate bill to be put to parliament on Monday.

Raising the pressure, Greece's two biggest labor unions called a 48-hour strike for November 6-7 to protest against the latest wave of austerity measures.

The bickering among the coalition allies threatens to bring next week's vote down to a numbers game, undermining Samaras's pledge that Greece's government is committed to doing everything it can to restore credibility in the eyes of European partners.

The austerity bill could be defeated if more than 10 of the 33 PASOK lawmakers oppose them.

Highlighting persistent trouble in meeting its targets, the country's privatization agency said on Tuesday it had slashed its revenue target to about 11 billion euros by the end of 2016, down from a previous target of about 19 billion euros by the end of 2015.

The lack of progress stems from the reluctance of Greek governments to sell off assets, political instability and the lack of investor interest in a country facing a grim economic future and the threat of an exit from the euro.

Despite public anger at the unpopular austerity measures, the budget is expected to pass in parliament since all three parties in the ruling coalition have agreed to back it.